By: Patti Maluchnik, CIC, CBIA
Georgetown Insurance Service, Inc.
Frederick, MD
Your business’ Experience Modification Rating (EMR) directly impacts your Workers’ Compensation premiums. This blog will explain what an EMR is, what factors contribute to the calculation of your company’s EMR, and share some tips on how you can lower it.
What is an Experience Modification Rating?
An EMR is a rating that compares your company’s workers’ compensation claims and subsequent risk to other similar-sized companies in your industry. Companies who have fewer claims and/or lower-cost claims than the industry average have a better chance of receiving a lower rating. This lower rating then translates to a lower premium since there is less risk for the insurer to provide them with coverage. The opposite is true as well. If a company has a large number of claims and/or higher-cost claims than the industry average than they will most likely receive a higher rating and higher premium.
EMRs take into account information from the three full years ending one year before your current policy expires to help determine the rating for the current year. The ratings and the industry/state benchmarks are determined yearly by the National Council on Compensation Insurance (NCCI).
The main factors that impact your EMR include:
- Expected Loss Ratio (ELR): Your ELR is the expected percentage that insurers believe they may need to set aside from your premiums to cover future claims. This ratio (in most states) is calculated by the NCCI and is based on industry type, location, and company size. It is possible to see more than one ELR on your experience rating worksheet if you work in multiple industries/trades.
- Losses (Expected vs. Actual): Your company will be assigned an expected loss each year. That number will then be compared against the actual losses that your company experiences in the calendar year.
- Number of claims vs. Severity: When your EMR is calculated, there is a cap on how much any one claim can affect your rating. This is done by splitting losses into primary and excess. The amount can differ based on state, but for the sake of this blog, we will use Maryland as the example. In the state of Maryland for the year 2018, only the first $16,500 will be used towards your primary loss (regardless of how much the entire claim actually costs). Anything above and beyond would be included in the actual excess loss category. Excess cost doesn’t hold nearly as much weight in the rating as the primary loss. This amount is subject to change each year.However, there is no cap on the number of claims that can count against you. A company’s EMR will be less affected by one severe claim that hits the primary cap then by having ten smaller claims filed over the course of the year. The EMR is set up to incentivize workplace safety and a high frequency of claims will ultimately be penalized.
Can you lower your EMR in the future?
Your experience modification rating can be seen as either a credit, debit, or a zero balance. The average company (as defined by the parameters set by NCCI) would have an EMR rating of 1.00. Their premiums would simply stay the same. If a company’s modification rating came in lower than the average at .80, they could expect their premiums to decrease by 20%. On the other hand, if a company had a particularly bad year and experienced actual losses far above the expected, they could find themselves with an EMR of 1.20 and owe 20% more on their premiums. It is obviously in any company’s best interest to lower this rating…the question then becomes: is that possible?
While you don’t have control over how your EMR is calculated you can look for ways to decrease the number and cost of claims. Approaches could include:
- Have a properly designed Return to Work Program in Place. Having a well-designed Return to Work Program is both beneficial for employees and the employer. For employers, it can reduce the amount of time that employees are out of work and also minimize the risk of a re-injury. This can result in a reduced overall claim amount and the likelihood of a new claim. You can check out the Return-to-Work Toolkit from the DOL for more information: Stay at Work/Return to Work Resources
- Reporting accidents as soon as they happen. There are very strong statistics that reveal the quicker a claim is reported, the lower the ultimate incurred loss. Frequently, injuries that go unevaluated for an extended period of time will end up being more expensive due to exacerbation of the injury. Reporting accidents promptly can help minimize your overall primary losses.
- Improve workplace safety. Do you have safety guidelines and procedures in place? Do you implement a formal safety plan? Are these rules or plan actually followed? Look for ways to improve your overall workplace safety and have a zero tolerance policy for safety violations. You can also offer training programs to help ensure proper safety education for employees. The OSHA 10-hour and 30-hour Training programs are great places to start.
- Personal Protective Equipment (PPE). Providing PPE to employees, teaching them proper usage, and enforcing the use of PPE can minimize frequency of losses. Having a low frequency is beneficial since frequency of losses impacts the EMR more than severity (example five $10,000 losses is much worse than one $50,000 loss).
- Don’t rush hire. You can have the best workplace safety guidelines in place, but if your employees don’t care, it doesn’t really matter. Make sure that you hire workers you can trust to not just to do the job, but do it safely.
- NEVER hire uninsured subcontractors. You should always verify that any subcontractors that you work with have proper insurance coverages and limits in place. If they don’t, you could be left footing the bill.